Wha'ts Gold telling us here?
Not exactly sure what this up move means but the timing here and the Russian hacking and Obama administration saber rattling probably doesn't help much:
"Under Obama’s directive, two Russian compounds in New York and Maryland will be shuttered. Some 35 Russians have also been declared “persona non grata” and ordered to leave within 72 hours. Several were accused of stealing money from U.S. financial institutions or hacking the networks of other major companies."
“All Americans should be alarmed by Russia’s actions,” Obama said.
I'll start this post with a quick review of my last Best Opportunity Sector which was Energy OIL December 2015. This proved to be the absolute bottom in oil at $26. Granted at this same time there were only 4% of Energy stocks that were bullish and analyst reports and firms were saying Oil was going to $19. It's always a difficult buy when no one wants it but the risk to reward is off the charts.
Below you will see that the Energy stocks went from 4% bullish to 94% bullish. Very difficult not to make money. So for an entire year we held long Oil and Energy related names such as XOM, OIH, MRO, XLE and MPC just to name a few.
Gold for 2017
There are a number of ways to play Gold. As it goes through the process of ringing out the weak hands, you may want to look at names that pay dividends. You can also play Emerging Markets that do well such as Australia, Brazil, Argentina, South Africa.
The charts below show that the Metals ETF bullish against the Energy ETF suggesting Energy should see a pullback and metals should see an uptick. The metals and mining are within the Institutional Buy Zone.
For more information on how to track Institutional Money Flow feel free to contact me.
Tracking the Institutional Money Flow- (IMF) can help you position your accounts to take advantage of opportunities that may present multi year moves. You can also scalp and trade in the direction of the IMF and find better risk to reward opportunities. You may even catch the beginning of a trend before it trends giving you better pricing.
Below, please find the Commitment Of Traders Report- (COT) and pay special attention to the relationship between the COT report and the Bullish Percent Buy/Sell Zones.
For more information on how we track IMF please contact me at: email@example.com
Long only fund managers have been pairing back their holdings for the last few months while leveraged, hedge funds who can go long and short have been adding to their positions. Perhaps the recent Trump move is from the short funds covering the positions. Although this up move is very powerful, it is running up on lower volume and therefore most likely setting up for a massive short opporunity. The reason is the long only and longer term Asset Managers do not initiate long positions when risk levels are above 70% in the NYSE. Instead, look for more companies to come to market through IPO's, more M&A from companies using their inflated stock prices (free cash) and companies spending less on equipment and capital expenditures by hording their cash.
Asset Manager/Institutional- These are institutional investors, including pension funds, endowments, insurance companies, mutual funds and those portfolio/investment managers whose clients are predominantly institutional.
Leveraged Funds These are typically hedge funds and various types of money managers, including registered commodity trading advisors (CTAs); registered commodity pool operators (CPOs) or unregistered funds identified by CFTC.3 The strategies may involve taking outright positions or arbitrage within and across markets. The traders may be engaged in managing and conducting proprietary futures trading and trading on behalf of speculative clients.
When 90% of the stocks in the Energy Sector are bullish it usually means there is no one left to buy. As you can see with this equal weighted percent chart you see a rotation in the market (2009, 2013, Dec 2016) back to levels where Institutions accumulate positions. I will pair back my holdings in this sector significantly from when I purchased them a year ago when there where only 4% of the names in the Energy Sector bullish.
Update...A few hours later after I posted this blog note, RBC Warns January is setting up for a "Massive Mean Reversion Month"
My core philosophy and approach to the market is in analyzing the volume action of large commercial traders, institutions and program algorithms who control upwards of 92% of the daily volume in the market, or what I call Institutional money flow (IMF). I've been involved in the markets since 1994 at a professional level working in Venture Capital, Private Equity, and Proprietary Trading with firms such as Bear Stearns, Sungard Capital Markets, Phase II Capital and Swiss Bank, UBS where my niche was in analyzing and tracking institutional money flow.
I used this strategy to successfully Identify where smart money was quietly accumulating large positions under the radar and simply remembering where those abnormal sized orders were being placed. When price revisited that level I would work the order book to see if the institutions defended that area. I would then ride their "coattails" and trade in the direction they initiated trade. Not really rocket science, yet I used this process to handle trading for institutional clients, Fortune 500 corporations, CEO's, money managers, hedge-funds, and one of the largest private equity funds in the world.
Over the years I've come to believe that In trading and investing, if you don't know WHERE and at WHAT price Institutions are buying and selling their positions, you do not have a winning edge, period!
"It's all about figuring out when the institution is buying and selling"-The Wall Street Code-Eric Hunsader